Answer:
(a) $5; $7,000
(b) 1,400 haircuts
; $ 14,000
(c) $1,000.
Explanation:
Barber's base rate (4 × 1,250) = $5,000
Total Fixed cost (TFC):
= Barber's base rate + Manager's salary + Advertising + Rent + Utilities + Magazines
= $5,000 + $500 + $200 + $1,100 + $175 + $25
= $7,000
(a) Variable cost per hair cut = 4.50 + 0.20 + 0.30
= $5
Contribution margin per unit = 10 - 5
= $5
(b) Break-even point in units:
= Total fixed cost ÷ contribution margin per unit
= 7,000 ÷ 5
= 1,400 haircuts
Break-even point in dollars = 1,400 × 10
= $ 14,000
(c) Assuming 1,600 haircuts per month,
Net income = (No. of haircuts × Contribution margin per unit) - TFC
= (1,600 × 5 ) - 7,000
= $1,000.
